Realtors plagued by Rs 120,000 cr debt as banks play hardball

The real estate sector, which has seen a 36% surge in its outstanding debt at Rs 120,000 crore so far in 2011-12, has become a cause for concern to the banking industry.

Most real estate firms including the big daddies such as DLF, Unitech, Parsvnath have sizeable debt on their books. While they are looking to restructure their debts, banks are unwilling to grant them the option, banking industry sources said.

Last year, the sector had about Rs 88,000 crore debt.

The Reserve Bank of India has indicated the realty sector posed “some concerns” given the large and growing share of these loans in the credit portfolio of banks. It said in one of its reports that the asset quality in this segment could come under further pressure given the increasing interest rate environment. “There is also some anecdotal evidence of increasing inventory levels in the sector even as prices continued to remain elevated,” the RBI said.

“The going has not been easy for real estate companies and they are looking to liquidate their assets and clear inventories and in case banks decide to take a hard stand, these firms could even have to reduce prices,” said Anurag Mathur, MD, Cushman & Wakefield.

Realty majors would have to look at alternate sources of funding like private equities in a bid to repay their outstandings. The dearth of funds has also led to a delay in completion of housing projects in several parts. The alleged involvement of Unitech and DB Realty in the 2G spectrum scam has also aggravated the problem, a senior bank executive who did not wish to be identified said.